Glencore's Australia listed taps mining friendly capital for copper and M&A goals
Glencore's plan to list on the secondary market in Australia is a move to tap into one of the fastest-growing pools institutional capital around the world to finance its copper growth ambitions, and possibly pave the road for transformational M&A.
Australian pension funds are well-capitalized and have a high appetite for resource stocks. According to a Deloitte Report dated 'June, the 'country's pension assets are worth A$4.4 trillion (about $3 trillion), and they will reportedly triple in value to A$12.4 billion by 2045.
Glencore CEO Gary Nagle stated on Wednesday that he believes his company can be included in Australia's benchmark ASX 200 Index within a year. This would require about A$1.5billion of market capitalisation.
Nagle said that investors have shown a strong interest in a listing of Australian companies, especially after Glencore's failed merger negotiations with Rio Tinto earlier this summer.
He told reporters that "many investors have requested to meet us after certain discussions about Rio", adding that a trip to Australia in April and March generated a lot of interest among large pension funds.
AustralianSuper, Australia's largest pension fund, stated in May that the listing of Glencore ASX would be "positive" both for the exchange and company.
Solaris Investment Management's Chief Investment Officer Michael Bell said: "If Glencore wanted to list here, we would look at it. We welcome more companies on the ASX."
Australian fund managers await further details and will be calling management in the next few days. Some believe that Glencore might not find success as fast as Nagle anticipates.
It will be difficult without a liquidity event, such as a new share issue, the sale of existing shares or a merger and acquisition. No franking. Four fatalities. Thermal coal. It may not be possible to purchase superfunds alone.
Tax credits that are attached to dividends reflect the Australian company tax paid. These credits are very popular among Australian investors. They can lower tax bills and generate cash refunds.
Glencore has acknowledged four fatalities from work-related incidents in the first two months of this year. Rio Tinto reported two, BHP just one.
Nagle stated that existing Australian shareholders had limits to how much capital they could invest abroad. A local listing would help them unlock more capital.
Mergers and Acquisitions
The move is a result of the expiration of a six-month moratorium on merger talks with Rio Tinto.
Jefferies analysts wrote in a report that this listing would make it easier for Glencore's large M&A deals with Australian listed companies.
Although Nagle insists that the focus will be on organic copper growth in Australia, an ASX listing could facilitate future Australian deals. This would increase Glencore's visibility to local investors while aligning its shareholders more closely with Rio.
RBC Capital Markets analysts stated that Glencore was "looking into an Australian listing in order to gain access to mining-friendly investors, or at least to make their name known if Rio Tinto decides to merge with Glencore again."
Nagle stated that a secondary listing on the Australian stock exchange would not make a difference in any possible merger with Rio.
The ASX would have a major coup if it could land a $87 billion global commodities and?miner, a company that is a leader in the resources sector, which has been losing some of its players due to consolidation.
The ASX was "delighted",?that Glencore chose to list in Australia.
FILLING THE COPPER GAP
After years of deal-making in the industry, Australian investors are seeing domestic copper investment opportunities diminish.
Glencore expects to increase its copper production from the 810,000-870,000 tons that are expected to be produced this year to approximately 1.6 million metric tonnes by 2035. This will require substantial capital investments.
The company's net capital expenditure in the first half was $4 billion, which included investments across its copper-portfolio to secure land access and growth opportunities, as well as operational flexibility.
Nagle stated that the listing would enhance Glencore's image in "one our most important operating regions," increase its shareholder base, and improve trading liquidity.
Glencore's Australian operations includes copper, zinc, and nickel operations. However, thermal coal is still its largest business in Australia. Australia is the second-largest thermal coal exporter in the world, and Glencore is its largest producer.
The company received A$600,000,000 in government assistance over a three-year period to keep the?copper refinery and smelter open.
Australia offers investors with "deep expertise in the global resource sector" and those who are familiar with the volatility of the commodity cycle, as Nagle described it.
It would cost Glencore very little to list because the listing would be done through CDIs, (CHESS depositary interests), and would not involve any capital raising. However, it could open up the doors to institutional investors with mining expertise who are willing to invest trillions of dollars.
(source: Reuters)
